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Drafting a functional arbitration clause and understanding the relevant legal terms therein

lipnja 13, 2022

Unlike a court proceeding which is an orthodox method of dispute resolution embedded in the constitutional framework of every state, resorting a case to arbitration requires a specific expression of will from both parties. This is done through arbitration agreement. Substantially, just like any other agreement, it is a bilateral legal arrangement between two or more parties. If the agreement is made after a dispute has arisen, it is referred to as an „agreement of submission to arbitration“. If, however, it is contained in the very contract which is the base of the parties' dispute, it exists in the form of an arbitration clause. Arbitration clause, therefore, is a technical manifestation of an arbitration agreement when such an agreement is made before the dispute itself. Unlike an agreement of submission, an arbitration clause must be crafted in advance and with great care so as to include both the elements specific enough to define the substance of a potential dispute but remain vague enough to broaden the scope of disputes it can subsequently be applied to. Given the flexibility of its international character, international arbitration may consist of many different legal segments, all amalgamated into a single procedure.  

 

Most arbitral institutions and many government bodies that list arbitration as one of their competences recommend a clause the parties can then simply insert in their contract without having to deal with troubles of drafting their own. Foreign Trade Chamber of Bosnia and Herzegovina is no exception and on its website it recommends the following clause: „The Contracting Parties agree that in the event of a dispute arising from or in connection with this Contract, they shall entrust its resolution to the Arbitration court of the Foreign Trade Chamber.“​1 Further suggested to the parties are other appropriate provisions which may be included in the clause, such as the number of arbitrators, applicable law, language of the arbitral proceeding etc. These should be included on the same page but outside the arbitral clause itself which is, therefore, rather short and only contains the competent body that will carry out the procedure.  

 

The clause of the International Chamber of Commerce is similar in length but with a slightly different content.“​2 This one contains not only the competent institution but also the specific procedural rules according to which arbitration will be conducted.  

An example of a longer, more detailed clause would be that of the Swiss Arbitration Centre.“​3 The Swiss clause specifies in more detail the nature of the dispute that may arise, provides for procedural rules, the competent institution, the number of arbitrators, the seat and the desired language.  

 

Since the aforementioned arbitration clauses are only templates that may or may not be implemented by the parties and since every dispute is different, the terms „correct“ or „more suitable arbitration clause“ are not applicable here. Arbitration clauses simply exist for parties' convenience as a reference point of what future arbitration may entail. Therefore, clauses are there for educational purposes. Longer clauses are not in themselves better but they familiarize the parties and practitioners with different types of legal provisions needed for conducting international arbitration. For instance, by giving an example of the seat of the arbitration that not necessarily has to be in Switzerland but also elsewhere, the Swiss clause tells us that the seat does not have to be in the same state as the aribtral institution which means that lex arbitri does not have to be the law of the state where such institution is founded. It also tells us that the seat of the arbitration is not a reference to physical space, but rather to applicable law (lex arbitri). For this reason, it may be advisable to either create a slightly longer clause that encompasses more legal terms relevant to the process of arbitration or to create an addendum to the shorter one that references more structural elements of international arbitration.  


  1. https://www.komorabih.ba/wp-content/uploads/2019/05/Preporucena_arbitrazna_klauzula.pdf 
  2. https://iccwbo.org/dispute-resolution-services/arbitration/arbitration-clause/ 
  3. https://www.swissarbitration.org/centre/arbitration/arbitration-clauses/

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